What started off as the exception to the rule, cash-only businesses, seems to be catching on with a number of small business owners who are saying “no” to plastic.
Not so very long ago, consumers were encouraged to use credit cards for purchases. Using plastic made it easy to track and keep records of expenditures and eliminated the need to carry wads of cash around. Department stores encouraged shoppers to sign up for their credit cards in return for special discounts, etc. Retailers seemed to prefer plastic to personal checks and banks were practically begging us to sign-up for all of the credit cards we could stuff in our wallets. Well, that all has changed.
The change agents are the small businesses being hit by the ‘swipe’ fees that credit card companies and banks charge them to cash-in a credit card transaction. There was a touch of relief in the most recent financial reform package out of D.C. that allowed merchants to legally set $10 minimums on credit-card purchases, and offer discounts and promotions for cash purchases. The Federal Reserve also says it will issue new standards for swipe fees for debit cards to make sure they are “reasonable and proportional” to the costs of the transaction in the next eight months. Credit-card fees, however, would remain unregulated.
Many business owners feel the reform was insufficient to warrant going back to credit cards.
Until fees disappear completely, “we are standing by it, (cash only policy)” says Amy Rubenstein, one of the operators of Peter Luger, Inc., the iconic steakhouse in Brooklyn, N.Y. that her father purchased in 1950. “We have high food costs, so we could give the customer the benefits on the plate rather than in credit cards.”
A number of cash-only businesses say financial reform doesn’t go far enough to encourage them to accept plastic, and business owners who do take credit and debit cards complain that transaction fees—which are usually around 1% to 3% of a purchase, but vary widely—will likely remain too high for the reform to make a significant impact on their bottom line.
Another retailer, a lighting and housewares business, in my neck of the woods, Rejuvenation Inc, discovered that the ‘swipe’ fees accounted for roughly 2.5% of her net sales, or $500,000.
“We realized we were paying as much in these fees as we are for health-care benefits,” says Alysa Rose, president and chief executive of Rejuvenation, Inc. of Portland, OR
Ms. Rose doesn’t accept debit cards and 89% of her sales are from credit cards, she says. Having the new financial reform set a $10 minimum won’t ease the burden because the average order is already much higher than $10. Instead, Rose is exploring customer incentives to pay in cash, such as displaying signs at registers saying 2% of all cash sales will be donated to Haiti earthquake relief. She is also considering implementing electronic-check systems, which would processes payments linked to the customer’s bank account, for the online business.
Trade groups such as the National Association of Convenience Stores, which had prominently lobbied for fee relief, are disappointed that the legislation won’t impact credit-card fees. The group estimates that the convenience store industry paid $7.4 billion in credit-card fees in 2009 while making $4.8 billion in profits. “The battle is far from over,” says Jeff Lenard, a spokesman for the group.
The fight may not be over, but if you’re interested in adding 1 or 3% to your bottom line, you might want to consider altering your credit card policy. Figure out what the ‘swipe’ fees are costing your business and adjust your card policy accordingly.Source for quotes from WSJ, Emily Maltby